Market responses to qualitative information from a group polarization perspective

This study examines the predictions of group polarization in response to the receipt of qualitative information (i.e., good or bad news) in a laboratory market. Qualitative information induces varying beliefs within the market because such information is interpreted using the relevant knowledge possessed by the recipients. Findings from the group polarization literature suggest that individuals who subsequently hold the most extreme price beliefs will influence the market to a greater extent than individuals holding the most conservative beliefs. Group polarization research also suggests that participation in a market will accentuate risk preferences so that good news produces a cautious shift in prices (i.e., towards lower prices) whereas bad news produces a risky shift (i.e., towards higher prices). The results confirm the predictions of group polarization and further suggest that if extreme reactions to information reflect recency, so too may the market price.